Lost in Translation – What Wall Street Can’t Tell You About the Chinese Trade Deal

Keith Fitz-Gerald Feb 20, 2019

Many Americans are preconditioned to “hate” China… which means their money is at risk when a deal happens.

And, yes.

It will happen.

Western media is exceptionally good at telling you who said what, but very rarely do they go beyond that – which means they miss the subtleties.

Not surprisingly, that’s usually where the real story is.

And where the real money gets made.

Reading Between the Headlines

I’ve spent decades in global markets, including a lot of time focused on and in mainland China, where you have to read between the lines to get at the real meaning of anything that’s said.

There are both literal and figurative translations to contend with. All too often, inexperienced observers – and even many experienced ones – will provide one without the other. So the true meaning is frequently lost in translation.

Context, when it comes to China, is especially important.

The Chinese language comes from context-driven lexical borrowing, meaning it’s heavy on intuitive meaning, context and symbolism. You can’t exactly articulate that during a 10-second sound bite on prime time or even in a newspaper story, so most mainstream news outlets don’t bother.

Take recent Chinese headlines related to the ongoing trade talks, for example.

There is a path to a ‘win-win’ outcome in US-China trade talks ~ South China Morning Post

Mutual trust will pave way for trade deal ~ China Daily

Open attitude to overseas investors will lift China’s satellite sector ~ Global Times

That’s a very pronounced shift from weeks past when the story was almost overwhelmingly negative.

What’s more, it’s a signal.

You see, China’s press rarely conveys anything that’s not already been decided.

What’s more, it choses words that the Communist Party knows will translate into English initially but, importantly, back into Chinese … precisely.

Noting that there is a “path” denotes progress while the phrase “mutual trust” conveys a willingness to engage in discussion that furthers China’s interests. Talking about “attitude” positively is intended to reassure domestic companies that the government has their back even though forced intellectual property transfer is under scrutiny.

Put another way, all three articles (and dozens more just like them) are prepping the Chinese people for a deal.

We have a similar message being played out in the United States media, but with different inputs. Here, the story is either about being tough or about why the decisions themselves will prompt specific actions.

… A US-China Deal is a Sell Trigger (Nasdaq)…

… “Very Negative” Global Impact if No US-China Deal, says Singapore (Bloomberg)…

… Markets drop as doubts grow over Trump’s China deal (Politico Magazine)…

Here, the story is either about being tough or about why the decisions themselves will prompt specific actions. This, too, is all about posturing and changing the way people think.

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Days Away From a Deal…

Psychologists on both sides of the Pacific know that headlines subtly shift the perception of everything you read. Effectively, they change the way people read and how they remember what’s been said by influencing what existing knowledge you already have.

Keeping up is enough to give you whiplash.

There’s a lot at stake.

In reality, China needs us just as much as we need them.

I know that’s not a popular thought in the mainstream media, but it’s one our leaders increasingly recognize as talks continue. The same is true in China.

I’m often asked “when” there will be a deal.

Honestly, I have no idea.

However, I believe that an agreement is a lot closer than most investors realize. I also believe that now’s the time to make your move.

Why?

Because the amount of capital behind “held back” will come roaring in within minutes of an announcement, especially if they can work out implementation and enforcement… details that ensure verifiable and sustainable progress.

To some degree, the markets already reflect the outcome.

Case in point, more than 50% of the S&P 500 is above their 200 day moving average. That’s telling because it confirms that the strength needed to break to much higher levels is there. Especially when it comes to Boeing, Apple and other stocks beaten down initially on fears of a Chinese trade war.

So, now what?

Most investors could double their exposure to China and still not have enough. And I don’t mean investing in little known Chinese companies either. I mean investing because of China, which is a very different proposition.

The best play right now is to stick with the big boys tapped into China’s primary economy. Not only are they going to received continued Chinese governmental favor, but they’re the ones with the most to gain because of their exposure to Western markets and, by implication, capital.

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My favorite choice is Alibaba Group Holding Ltd. (NYSE:BABA).

Many investors think of it as the “Chinese Amazon,” but that’s a lot like calling Amazon a “book seller” these days and just as outdated..

The company has moved well beyond simply selling stuff and has highly developed operations in e-commerce, media, artificial intelligence, payment processing, digital finance, e-commerce, and more.

I am particularly focused on Alipay, China’s first customer-to-customer payment system. Created in 2004, it already accounts for 50% of all Chinese e-commerce transactions and counting.

Then there’s cloud computing.

Like Amazon.com Inc. (NasdaqGS:AMZN), Alibaba is moving into the cloud with a vengeance. Newly installed CEO Daniel Zhang has made it very clear that Alibaba’s primary business will revolve around the digital era. I agree …there’s no higher profit-path way to do that.

And finally, Alibaba announced yesterday that it’s accumulated a 11.74% stake in CICC (China International Capital Corp’s Hong Kong listed bank),.That’s a move that Alibaba wouldn’t make if it weren’t interested in fintech and the billions that go with it.

Alibaba is trading at $170.18 per share at the moment, having come off a December low of $129.77, which means it’s still very inexpensive to my way of thinking. The average analyst target is $209.33 a share in the next twelve months, according to TipRanks, but I think that’s an order of magnitude low.

Imagine what happens when there’s a trade deal in place.

I can easily envision a “double” … possibly more!

Until next time,

Keith

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